Jack Ma, CEO of Chinese e-commerce giant Alibaba, speaks in Paris. After a year of massive losses ... [+] AFP via Getty Images
Shares of Chinese tech giants trading in the United States posted stunning losses Friday amid intensifying concerns over U.S. regulatory efforts to ramp up financial disclosures for foreign entities after ride-hailer Didi Global’s catastrophic trading debut this year, yielding one-day losses of more than $80 billion for the ten largest U.S.-listed Chinese stocks.
Heading up the Friday plunge, Didi shares had plummeted 18% by 12:30 p.m. EST, wiping out $7 billion in market value after the embattled Beijing-based firm announced it would begin removing its shares from the New York Stock Exchange and instead list on the Hong Kong Stock Exchange.
Though widely expected, the delisting “represents the beginning of the unwinding of a large part of U.S.-China business relations,” David Trainer, the CEO of investment research firm New Constructs, said in emailed comments, calling China’s relaxed financial disclosure requirements irreconcilable with U.S. laws.
Fueling concerns over additional delistings, the Securities and Exchange Commission on Thursday proceeded with plans that could eventually force many Chinese stocks off U.S. exchanges by subjecting foreign entities to heightened disclosure requirements, including U.S. government financial audits.
Shares of e-commerce juggernaut Alibaba, the largest Chinese company listed in the U.S., were among the hardest hit, down 8% on the New York Stock Exchange to a nearly five-year low of $112, deflating its market capitalization to $305 billion.
Fellow online retailers JD.com and Pinduoduo, the second- and fourth-largest firms, posted similarly staggering losses, falling 9% apiece to shed about $12 billion and $6 billion in market value, respectively.
The selloff hit a wide array of sectors: Online gaming company NetEase, electric carmaker NIO and internet firm Baidu plunged 6%, 15% and 8%, respectively.
All told, the ten largest Chinese companies trading in the United States have lost about $83 billion in market value on Friday—nearly 10% of their $850 billion in combined worth.
Chinese stocks trading in the United States have lost massive amounts of value since Beijing officials issued a series of sweeping private sector regulations this summer—in one instance banning the for-profit education business virtually overnight. “Yes, there’s a huge market and lots of growth potential, but obviously there are regulatory risks that seem to be growing larger with every passing month,” Tom Essaye, author of the Sevens Report, wrote in a recent note.
Epitomizing the effect on stocks, Didi shares have tanked 53% since they started trading in June, and Alibaba, once worth more than $858 billion, has crashed about 50% this year.
The Nasdaq Golden Dragon China index, which tracks Chinese businesses trading in the United States, is down 8% Friday and 42% this year. The index is at its lowest point since March 2020.
Shares of tech giant Alibaba continued to fall on Friday, adding to the stock’s massive selloff after the company said earlier this week that it expects weaker revenue growth amid China’s slowing economy and Beijing’s ongoing regulatory crackdown.
The tech and e-commerce giant reported disappointing quarterly earnings late on Wednesday and slashed its revenue forecasts for the year ahead.
Alibaba shares plunged over 11% on Thursday following the report—one of the stock’s largest single-day declines on record—and is down more than 2% so far on Friday.
The stock’s downward trajectory has shaved billions off of the net worth of Alibaba founder and chairman, Jack Ma, who was once China’s richest person.
Ma’s fortune fell by another $350 million on Friday, bringing his net worth to $38.6 billion, according to Forbes’ estimates.
The billionaire’s wealth is down dramatically from its peak: Ma was worth as much as $66.6 billion when Alibaba’s stock price hit a record high of around $317 per share on October 27, 2020.
It has been a difficult year for the Chinese billionaire, who is also the cofounder of fintech giant Ant Group: Ma has largely kept a low public profile since Beijing’s regulatory crackdown heated up last year.
Since last year, the Chinese government has ramped up its regulatory scrutiny of major tech giants in the country—including Alibaba and its peers Tencent, Baidu and TikTok owner ByteDance, accusing them of anticompetitive practices and gathering large amounts of private user data. Billionaire Jack Ma briefly disappeared from public view after Chinese regulators shut down his fintech company Ant Group’s planned $35 billion IPO in November 2020.
Government regulators then fined Alibaba $2.8 billion in April 2021—the highest-ever antitrust penalty imposed in China—for acting like a monopoly. Shares of Alibaba are down nearly 40% so far this year.
What To Watch For:
In its earnings release, the tech giant warned of a “regulatory environment that [could] affect Alibaba’s business operations” as well as “privacy and data protection regulations and concerns.”
Chinese president Xi Jinping “has not backed down” when it comes to the regulatory crackdown, John Freeman, vice president of equity research at CFRA, recently told Yahoo Finance. “There’s actually a delisting risk” when it comes to Alibaba shares, he warns.
Just days after Didi Global Inc., China’s version of Uber, pulled off a $4.4 billion initial public offering in New York, the Chinese cyberspace regulator effectively ordered it removed from app stores in its home market, citing security risks. The ruling doesn’t stop the company from operating -– its half-billion or so existing users will still be able to order rides for now. But it adds to the uncertainty surrounding all Chinese internet companies as regulators increasingly assert control over Big Tech.
1. What’s Didi?
It’s China’s biggest ride-hailing company. Didi squeezed Uber out of China five years ago, buying out the American company’s operations after an expensive price war. Its blockbuster IPO on June 30 was the second-biggest in the U.S. by a company based in China, after Alibaba Group Holding Ltd, giving Didi a market value of about $68 billion.
Accounting for stock options and restricted stock units, the company’s diluted value exceeds $71 billion — well below estimates of up to $100 billion as recently as a few months ago. The relatively modest showing reflects both investors’ increasing caution over pricey growth stocks, and China’s recent crackdown on its biggest tech players.
2. What is this investigation about?
The specifics are still very unclear. Two days after the IPO, the Cyberspace Administration of China said it’s starting a cybersecurity review of the company to prevent data security risks, safeguard national security and protect the public interest. Two days after that it said Didi had committed serious violations in the collection and usage of personal information and ordered the app pulled. There are no details on what precisely the investigation centers on, when or where the alleged violations occurred or whether there will be more penalties to come.
3. Are there any hints?
The Global Times, a Communist Party-backed newspaper, wrote in an editorial that Didi undoubtedly has the most detailed travel information on individuals among large internet firms and appears to have the ability to conduct “big data analysis” of individual behaviors and habits. To protect personal data as well as national security, China must be even stricter in its oversight of Didi’s data security, given that it’s listed in the U.S. and its two largest shareholders are foreign companies, it added.
No. In May, China’s antitrust regulator ordered Didi and nine other leaders in on-demand transport to overhaul practices from arbitrary price hikes to unfair treatment of drivers. More broadly, Beijing is in the process of a sweeping crackdown on the nation’s Big Tech firms designed to curb their growing influence.
In November 2020 the authorities derailed the planned IPO of fintech giant Ant Group Co. and in April hit Alibaba with a record $2.8 billion fine after an antitrust probe found it had abused its market dominance. Didi, however, said on Monday it was unaware of China’s decision to halt registrations and remove the app from app stores before its listing.
6. Why does Didi matter?
You can’t really overstate just how dominant Didi is in ride hailing in China, accounting for 88% of total trips in the fourth quarter of 2020. When Didi bought Uber’s Chinese operations in 2016, Uber took a stake in the company that currently stands at 12%. Didi’s U.S. IPO was shepherded by a who’s who of Wall Street banks. Its largest shareholder is Japan’s SoftBank Group Corp. with more than 20%, and others include Chinese social networking colossus Tencent Holdings Ltd. However, due to Didi’s ownership structure, Chief Executive Officer Cheng Wei and President Jean Liu control more than 50% of the voting power.
7. How’s the company doing?
While Didi had a net loss of $1.6 billion on revenue of $21.6 billion last year, according to its filings with the U.S. Securities and Exchange Commission, its diversity cushioned it against the worst of the pandemic downturn. The company reported net income of $837 million in the first quarter of 2021. With growth in its core market beginning to slow, it has expanded rapidly into fields from car repairs to grocery delivery and has pumped hundreds of millions into researching autonomous driving technology. It’s also said to be planning to expand services into Western Europe.
8. What happens now?
On Didi specifically the critical question is what the review regarding user data finds. But analysts are already looking at the likely wider impact. Key issues are whether the action is likely to discourage other Chinese tech firms from embarking on an overseas listing, and whether the action marks a new direction for the regulatory crackdown. Didi itself said in a statement in would fully cooperate with the review. It warned though that the removal of the app for new users may have an adverse affect on revenue.
Based on the laws cited by the regulators, Didi is probably being investigated over its purchase of certain products and services from other suppliers, which may threaten national data security, according to analysts from Shenzhen-based Ping An Securities. “Didi will inevitably have to check its core network equipment, high-performance computers and servers, large-capacity storage equipment, large databases and application software, network security equipment, and cloud computing services, sort them out and make necessary rectifications to meet regulatory requirements,” the analysts wrote in a note on Monday.
Yang Sirui, chief analyst for the computer industry at Bank of China International, said that Didi went for its public listing in the US hastily, probably due to investor pressure. “Listing Didi as soon as possible meets the demands of the capital,” he said. “But if [Didi] had arbitrarily collected user privacy data, abused it, or monetized it illicitly, it will inevitably be punished by Chinese regulators.” Since its founding in 2012, Didi has undergone a number of private fundraising rounds, raising tens of billions of dollars from venture capital or major tech firms. According to its IPO prospectus, SoftBank Vision Fund is currently the largest shareholder of Didi, with a 21.5% stake. Uber (UBER) and Tencent (TCEHY) followed with a 12.8% and 6.8% stake respectively.
Didi is a Chinese vehicle for hire company headquartered in Beijing with over 550 million users and tens of millions of drivers. The company provides app-based transportation services, including taxi hailing, private car hailing, social ride-sharing, and bike sharing; on-demand delivery services; and automobile services, including sales, leasing, financing, maintenance, fleet operation, electric vehicle charging, and co-development of vehicles with automakers.
In March 2017, the Wall Street Journal reported that SoftBank Group Corporation approached DiDi with an offer to invest $6 billion in the company to fund the ride-hailing firm’s expansion in self-driving car technologies, with a significant portion of the money to come from SoftBank’s then-planned $100 billion Vision Fund.
DiDi claims that it provides over tens of millions of flexible job opportunities for people, including a considerable number of women, laid-off workers and veteran soldiers. Based on a survey released by DiDi in March 2019, women rideshare drivers in Brazil, China and Mexico account for 16.7%, 7.4% and 5.6% of total rideshare drivers on its platforms, respectively. DiDi supports more than 4,000 innovative SMEs, which provides more than 20,000 jobs additionally.
40% of DiDi’s employees are women. In 2017, DiDi launched a female career development plan and established the “DiDi Women’s Network”. It is reportedly the first female-oriented career development plan in a major Chinese Internet company.
Everyone loves Bitcoin. Personally, I can’t get enough of it. Though I just sold all of my XRP, as an aside, because I learned it was being delisted from Coinbase next week, Bitcoin, on the other hand, I am keeping for the moonshot.
Now that Grayscale has its Bitcoin Trust exchange-traded fund, the market cap for Bitcoin has hit a trillion dollars. It is approaching $40,000 per coin.
We know the role central banks are playing in BTC’s rise: debasement of currency via money printing. But what about China?
This is the most curious one for me, especially following what appears to be the self-exile of Jack Ma, the billionaire founder of Alibaba BABA+4.1%. Ma got into some trouble with Beijing regulators following the postponed listing of his fintech company Ant Financial, owners of AliPay, which is ubiquitous in China (you can also find it at your local CVS for some reason). Now there is talk of breaking up the Jack Ma tech empire, something akin to what anti-Big Tech advocates here in the U.S. have been asking be done of Google and Facebook.
One can almost see Chinese billionaires buying up Bitcoin, just in case Beijing comes for their wealth. Lord knows the dollar is in decline, and they probably already own a ton of stocks.
The Chinese currency, out of all the G10 currencies, has the strongest statistical correlation to BTC over the last 12 months, at around 84%. That means that as the RMB gets stronger against the dollar, so does Bitcoin, 84% of the time, says Vladimir Signorelli, head of Bretton Woods Research in Long Valley, New Jersey.
“When Bitcoin rises, the RMB is rising right along with it,” he says, adding that the euro has a 74% to 75% correlation with Bitcoin. The Russian ruble has a 25% correlation.
And then there is the Jack Ma effect. He’s the “canary in the coal mine” says Signorelli. “There could also be an internal dynamic in China keeping Bitcoin bullish,” he says. “You have Jack Ma’s total disappearance since October. Was it a canary in the coal mine for every millionaire and billionaire in China that you need to have a Plan B? There is a real risk of outright confiscation of your wealth. They see it clearly now.”
China’s crypto market has a massive user base. Singapore-based ZB.com Exchange is one of the top four exchanges that are popular among Chinese users. “Our in-app community is very active with Chinese users right now,” says Oman Chen, ZB’s CEO. The seven-year-old company runs digital asset trading platforms ZBM, ZBX and Bithi, cryptocurrency wallets like BitBank, and has a venture capital and research arm. “Most of these traders are very optimistic about the price of Bitcoin,” Chen says.
QCash, a stable coin trading pair supported on ZB.com, which is anchored to the Chinese yuan, is seeing strong trading volumes, according to ZB data. QC is the most liquid yuan-based stable coin.
China’s Digital Yuan Experiment
Last month, China gave its digital yuan a test drive in Suzhou. The experiment lasted roughly 10 days, but stands as a testament to China’s interest in crypto beyond the Bitcoin phenomenon.
Xinhua newswire reported on one resident surnamed Lu who had bought some snacks at a store in the Tianhong Shopping Mall using digital yuan. She transferred 66.6 yuan (about $10.21) from her digital wallet to the vendor’s account with no need for a cell tower connection.
Lu was one of the 100,000 residents of Suzhou who were given 200 digital yuan in the pilot program and could spend it at designated brick-and-mortar stores as well as online at JD.com between Dec. 12 to 27. Noted: not Alibaba.
This doesn’t mean the Chinese government loves Bitcoin, of course. Just that its population is more accustomed to the concept of cryptocurrency than the average American. Go ahead, ask your dad if he knows what Bitcoin is.
“The Chinese government considers Bitcoin a commodity, not a currency,” says Aries Wanlin Wang, a Chinese cryptocurrency investor.
The digital RMB (DCEP) program in Suzhou has adopted some blockchain functionalities but it is not the fully decentralized kind that true Bitcoin lovers want.
“The Chinese government wants to promote the digital yuan before anyone else,” says Wang. “They see the potential of a new payment and clearance system in the digital currency era. It may substitute the current Swift system,” he says, which tracks interbank transactions and is led by the U.S.
Crypto For Poor Countries
Last month, Venezuela’s government said it was giving up on its currency and would switch slowly to a digital system. Their Bolivar is worth less than seashells found on Margarita Island so it makes sense.
Argentina should be next. All of this will drive continued enthusiasm for Bitcoin, no matter the price. At the start of 2020, Ripio, one of Argentina’s largest crypto exchanges, had around 400,000 users and then ended the year with over a million.
Argentina’s tight control over dollars (no one wants pesos there), coupled with a new 35% tax, plus limits as to how many dollars you can buy (just $200), means the Argentines have discovered Bitcoin in a big way, too.
China’s currency, unlike those two basket case currencies of South America, is strong and getting stronger. Moreover, its central bank has been moving on a digital form of its currency for at least three years. They lead on this within the big and medium-sized emerging markets. Indeed, the only country ever talking about Bitcoin is Venezuela, run by the mightily corrupt Socialists United party.
“Even though Beijing has a strong resistance to cryptocurrencies, namely Bitcoin, they have taken the part of blockchain technology that is beneficial to their country’s development,” says Chen from Singapore.
“The central bank’s digital currency can not only give the country a higher level of control over the fiat currency but also snatch back some Chinese users from third-party digital payment platforms such as Alipay and WeChat,” Chen says. Since central bank digital currency is issued at the national level, like fiat currencies, the state endorsement is more powerful to skeptics and it accelerates demonetization in favor of crypto.
Bitcoin, in China at the moment, is rising with the fortunes of a stronger yuan and the digital yuan experiments.
Rich Chinese nationals may be thinking, ‘you know what, I rather have something that is loaded and convertible and beyond the reach of Beijing and perhaps the reach of the PBoC’ — that’s the central bank of China.
In this way, they don’t have to worry about currency devaluation and Bitcoin becomes a tax hedge. The top income tax rate in China is around 45%.
People might not remember, but this time last year gold was at $1515 an ounce; it’s now around $1850. The dollar on a gold basis has lost 20% or more of its value, notes Signorelli, searching for reasons why Bitcoin has doubled in less than four weeks.
“If you put your currency and inflation hedges into BTC instead of gold, man…you’re doing fantastic,” Signorelli says. “My suspicion is that as Chinese wealth increases, it is going to be increasingly difficult for Beijing to prevent their nationals from seeking ways to preserve their capital outside of the RMB. If they can’t buy U.S. real estate or stocks, and U.S. and European bonds pay little, they’ll take some more risk with Bitcoin, I think.”
I’ve spent 20 years as a reporter for the best in the business, including as a Brazil-based staffer for WSJ. Since 2011, I focus on business and investing in the big emerging markets exclusively for Forbes. My work has appeared in The Boston Globe, The Nation, Salon and USA Today. Occasional BBC guest. Former holder of the FINRA Series 7 and 66. Doesn’t follow the herd.